by Jammer
posted May 12, 2008
 Jammer |
Speaking of questions, what lays ahead in the coming months? Where will interest rates go, when will the housing bubble improve? What will the Federal Reserve do next? What does all this mean to you?
Before we get to forecasting, understand that the Federal Reserve is not a branch of the government. They have no “checks and balances.” It is a private entity in its decisions but don't think for a minute not influenced by plenty of other key indicators. And people. And politicians.
Historically speaking, in presidential election years mortgage interest rates don't bounce around a lot. The Fed doesn't really want to influence the election. But, the past nine months have been anything but “normal” haven't they?
The national average 30 year fixed-rate conforming mortgage ended April right at 6.125% to those highest qualified borrowers. Let's put that in perspective and report to you that two years ago the average was 6.5%. Last month's numbers are still considered “low” by historic standards. The average 15 year fixed mortgage ended April at 5.625%. There are obviously differing rate “adjustments” to even the best interest rates one can “earn” too, such as for cashing out some of the equity in your home. You do still have some, right?
Most of the financial wizards seem to believe fixed rate mortgages are going to increase slightly to moderately over the next several months. Translation: steady through June (end of fiscal year) and start a trend up, gradually. When do we vote again? Many also seem to think the Fed is done slashing and burning (interest rates). I'd suppose our dollar value and inflation might have something to do with it.
So why would mortgage rates increase later? Simply put, the yield on the 10 year treasury, where investors head for safety during times of turmoil, fell to near all-time lows in the 1st quarter this year. When the Fed cut rates recently the market began improving. Yields went up 16.5% in April. Now that
turnaround helps the risk factor right? Anyway we want to look at it all these scenario's have silver linings. When risk looks better, investors are ready to roll the dice more in riskier assets. In turn, the 10 year treasury rate drops which will help mortgage rates go back down or at least offset any upward trends.
But keep in mind lenders also have narrowed underwriting standards in order to improve the overall risk in making loans. They're scrutinizing everything with a white glove on their mouses. Of course, the housing bubble plays its part with appraisal values. So does the credit card crunch.
As for the rest of the mortgage numbers, out for April, consumer borrowing is bouncing back, up for the 5th month consecutively, and with it being a “buyers' market” already those numbers should continue to improve. May and June are also months projected to have the most Adjustable Rate Mortgages (ARM's) re-setting. It's time to re-finance folks. In doing so, you will take your worries away, get a fixed program, and know your rate will be safe.
Bottom line? Um, well, do you have a crystal ball? Where will inflation go? Oil prices? The U.S. dollar? Unemployment? I'm starting to wonder if we shouldn't require any presidential aspirer to undergo a psychiatric exam to see if they're crazy enough to deal with all this.
TIP OF THE DAY: Don't wait till the last minute to re-finance that “ARM”. If you are in one now, let's talk about your scenario. Unless you like rolling the dice.
(Jammer is a Managing Senior Loan Officer for American First Mortgage LLC, and can be reached at (423) 894-8388 x239 or via email: chattjammer@yahoo.com)
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